Telaprevir Launch Approaches as Vertex Profits

Vertex Pharmaceuticals Inc. is preparing for a possible early 2011 launch of Telaprevir, the hepatitis C drug. In the process, Vertex has been racking up profits of over $1 billion from public offerings listed over the last one and a half years, and has also obtained $160 million in exchange for royalty rights for 2 protease inhibitors that were sold by GlaxoSmithKline plc, and opted to retool its telaprevir Asian partnership thereby giving up all future royalties in exchange for an injection of instant cash of $105 million.

A further cash infusion for Vertex is expected from the bonus milestones of Mitsubishi Tanabe Pharma Corp., pending approval of the telaprevir drug in Japan. Vertex has not broken out any specific payments although should it be able to hit all the milestones by earning the whole $170 million when expected, that would be a great plus for Vertex.

The royalty rate attached to the initial deal on Telaprevir with Mitsubishi has not been ball parked either. However, financial analysts are pegging this deal on Telaprevir to be in at least double digits. The estimate of the net present value of this royalty as given by Oppenheimer & Co. is anywhere between $140-150 million, while assuming a royalty of 15%.

Analysts further warn that the failure by Vertex to reach all milestones in a timely manner would result in Mitsubishi getting the better end of the deal on telaprevir.

Vertex is expected to launch telaprevir in Japan by 2012. This is because Phase III of the Telaprevir program is ongoing and data from sustained viral response collected from these studies is expected by 2010.

The telaprevir program in the United States has a head start of about one year. An application of the new telaprevir is expected to begin in the second half of 2010 and should receive approval by as early as the first six months of 2011. All rights to the protease inhibitor in the United States are owned by Vertex, which is a critical part of Vertex’s overall strategy. The amended Mitsubishi deal on Telaprevir protects Vertex from dilution while it spends on other areas such as purchasing the rights to the protease inhibitor in the United States.

By the end of the first quarter this year, Vertex had a total of $869 million in cash, cash equivalents and marketable securities. But ever since, the firm has been spending a lot, for instance on Research and Development costs related to Telaprevir which totaled $143.6 million during that same quarter. All this is due to their involvement in larger Phase III programs for both telaprevir and VX-770, a cystic fibrosis program.

Read more about R&D Cost Cutting: Managing Cost Containment and Safeguarding Productivity